Understanding Business- Growth

Question 1

Why would a business want to grow?

Answer 1

If the business grows it has greater control of its market, it is able to compete better with other firms and it can reach more customers, it is more able to resist takeovers and has a better chance of survival

Question 2

How can organic/ internal growth be achieved?

Answer 2

Opening new outlets 
Increasing sales
Increasing profits
Operating in more markets/ countries 
Introducing new products (diversifying)

Question 3

Benefits of organic growth?

Answer 3

Can be less risky than taking over another business
Can be financed through internal sources
Can build on existing strengths such as brands and good customer relations

Question 4

Drawbacks of organic growth?

Answer 4

A slower method of growth

Limited by the size of the existing market

Question 5

How can external growth be achieved?

Answer 5

By buying or taking over another business or by merging with another business

Question 6

What is backward vertical integration?

Answer 6

When a business takes over a supplier

Question 7

What are the benefits of backward vertical integration?

Answer 7

Allows the business to control its own source of goods/ materials
Adds the suppliers profit to its own
Can ensure the quality and quantity of supplies
Can control supplies to competitors

Question 8

What is forward vertical integration?

Answer 8

When the business takes over its customer

Question 9

What are the benefits of forward vertical integration?

Answer 9

Guarantees an outlet for its goods
Can control the marketing mix for its products
Adds the profit of the customer to its own

Question 10

What is horizontal integration?

Answer 10

When two business’ at the same stage in the production process join together. They can be seen as competitors.
It can involve one business completely taking over another business or it may be a joining of the two to create a new business

Question 11

Benefits of horizontal integration?

Answer 11

Larger, more financially secure
Gets the profits of the other business
Increases its customer base
Greater marker presence

Question 12

Drawbacks of horizontal integration?

Answer 12

Requires allocation of financial and HR resources
Risk of harming main business
Takes time to merge the 2 business systems

Question 13

What is diversification?

Answer 13

When a business moves into a new market by itself, or by taking over and merging with a business already in the new market

Question 14

What does a business achieve by diversifying?

Answer 14

It reduces the risk of business failure
It increases its profit share
Customers in the new market can be attracted to the existing products
It can be seen as a more successful business

Question 15

What is outsourcing?

Answer 15

Where part of the operations of the organisation is passed or ‘outsourced’ to a specialist who may be able to do the job better than the organisation itself

Question 16

What are the advantages of outsourcing?

Answer 16

It reduces staff and other costs in the area that has been outsourced
Outsourced companies will have specialist equipment
The service need only be payed for when required
Organisations can concentrate on core activities

Question 17

What are the disadvantages of outsourcing?

Answer 17

Organisations can lose control over outsourced work
Communications need to be very clear or mistakes could arise
The service can be more expensive as the specialist supplier will add their own profit to the price charged

Question 18

What is asset stripping?

Answer 18

If the business is bought over by another firm and the assets are sold off the fund the purchase and increase wealth of the buyers.
Happens when the value of the shares is lower than the value of its assets

Question 19

What is a buy in?

Answer 19

When an outside management company buys the business as they believe they can manage it more successfully.
Commonly seen when the existing business is struggling to achieve success in the market

Question 20

What is buy out?

Answer 20

When an interested party buys or takes over control of the firm. May be the existing management when they think the owners vision will not lead to success.
Could also be an employee buy out, where employees get together to fund the existing business

Question 21

What is a demerger/ deinvestment?

Answer 21

When organisations sell off unwanted subsidiary businesses/ divisions

Question 22

Why would a business demerge?

Answer 22

To raise capital for new projects
Increase efficiency of operations
Remove underperforming parts of the business
Remove themselves from negative publicity

Question 23

What is de-integration?

Answer 23

Involves selling off one of the businesses previously taken over. May be that it decides to focus on customers and so focuses on areas where it has expertise and brand value